The UK has fallen into second place behind Germany in the ranking of Europe’s most active markets for commercial real estate investment, according to new data from Real Capital Analytics (RCA).
Germany now occupies the top spot for the first time since 2012, with uncertainty following the UK referendum on June 23rd affecting investor strategy in the third quarter of 2016.
'The uncertain outlook following the ‘Brexit’ vote has compounded the slowdown in the UK market, which peaked a year ago,' commented Tom Leahy, RCA’s director of EMEA Analytics.
'Across Europe the investment cycle has reached a stage of maturity after the record year in 2015, which is causing investors to shift their focus towards second-tier locations or ‘alternative’ real estate sectors such as hotels, student accommodation and healthcare,' Leahy added. 'This is taking place against a backdrop of ultra-low interest rates and caution in face of a number of global economic, financial and social risks that have caused overall investment activity to slow.'
The UK market registered a 51% fall in transactions to €10 bn for the third quarter, according to RCA's data. The pound’s depreciation amplified the drop. It was the weakest three-month period for the British market since the second quarter of 2012 and the UK's share of Europe’s transaction activity was the smallest by value in six years. Germany's investment volumes totalled €13.6 bn in the quarter, a 34% drop from a year earlier.
RCA said that the total value of commercial property transactions completed in Europe during the third quarter was €46 bn, a 38% drop from a year earlier. That took overall investment volumes to €163.0 bn for the first nine months of 2016, 29% lower than for the same period in 2015.
London suffering rapid decline
Investment in London fell by 55% in the first nine months of the year to €16.7 bn, against a backdrop of concern about the future of the capital's financial services industry. Office space prices dropped quarter on quarter, falling an aggregate 8% compared with the first three months of the year, while quarterly average yields rose by 50 basis points to 4.71%.
The data showed that investors in Germany have been turning to towns outside the country's big seven cities in the face of strong competition in core locations, with Leipzig registering €1 bn of investments year to date.
Other second and third cities across Europe are benefitting from the shift away from the UK, with Helsinki, Rome, Utrecht, Zurich, Bristol, Liverpool, Malmo and Dresden attracting almost double the usual investment volumes.
Further trends include a shift towards alternative assets, such as hotels, student housing and healthcare, also prompted by steep prices for Europe's grade A assets in prime locations.
